ARKO Corp.

Greetings and welcome to the ARCO fourth quarter and full year 2024 earnings conference call. At this time, all participants are in a listening mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I now have to introduce our host, Jordan Mann, Senior Vice President of Corporate Strategy and Investor Relations. Thank you. You may begin.

Thank you. Good afternoon and welcome to ARCO's fourth quarter and full year 2024 earnings conference call and webcast. On today's call are Ari Kotler, Chairman, President, and Chief Executive Officer, and Rob Giammatteo, Executive Vice President and Chief Financial Officer. Our earnings press release and annual report on Form 10-K for the year ended December 31, 2024 as filed with the SEC are available on ARCO's website at www.arcocorp.com. During our call today, unless otherwise stated, management will compare results to the same period in 2023. Before we begin, please note that all fourth quarter financial information is unaudited. During this call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Please review the forward-looking and cautionary statements section at the end of our fourth quarter and full year 2024 earnings release for various factors that could cause actual results to differ materially from forward-looking statements made during our call today. Any forward-looking statements made during this call reflect our current views with respect to future events, and ARCO is under no obligation to update or revise forward-looking statements made on this call whether as a result of new information, future events, or otherwise, except as required by law. On this call, management will share operating results on both a GAAP basis and on a non-GAAP basis. Descriptions of those non-GAAP financial measures that we use, such as adjusted EBITDA and reconciliations of these measures to our results as reported in accordance with GAAP are detailed in our earnings release or in our annual report on Form 10-K for the year ended December 31, 2024. Additionally, management will share profit measures for our individual business segments along with fuel contribution, which is calculated as fuel revenue, less fuel costs, and exclude intercompany charges by our subsidiary, GPNP. And now, I would like to turn the call over to Ari.

Good afternoon, and thank you for joining us. 2024 was a challenging year for the industry and both a challenging and pivotal year for us as a company. Despite the challenging macro environment characterized by persistent inflation and constrained consumer spending, we remain focused on executing the strategic initiative that we believe will position ARCO for long-term growth. We continue to work on our transformation plan, including the dealerization program, while continuing to provide our customers with value through food service, expansion of our other tobacco product category, and targeted promotional strategies to enhance customer engagement, and loyalty. Overall, against backdrop of external pressures and in a dynamic environment, we managed the business effectively and delivered results near the midpoint of our annual guidance, reflecting our ability to adapt to market conditions and drive operational efficiencies while maintaining a strong focus on customer value and long-term profitability. Over the course of 2024, we consistently observed a consumer who continues to struggle, as well as evolving customers' preferences, including increasing demand for OTP and higher expectations for food service. In response to what we are seeing, we have made and continue to make investments to meet our customers' needs. I will first touch upon the immediate value we seek to deliver to our customers. We continue to reward our loyalty customers through promotions and have kicked off 2025 with incredible inside stores promotions that provide value on merchandise, but notably that leads to sizable discount on fuel. We recently launched our Fueling America's Future campaign, which offers allow customers to earn up to $2 off per gallon for up to 20 gallons when purchasing value promotions inside the stores. This is not only provides relief to our customers, But importantly, rewards our enrolled loyalty members, which we believe will help grow our loyalty program. During the quarter, enrolled members spend an average of $104 per month, which is nearly 60% more than non-enrolled customers. Additionally, enrolled members visited our stores about three more times per month on average compared to non-enrolled customers, reinforcing the effectiveness of our loyalty strategy. Turning to evolving customer preferences, I stated on our last call that one out of two enrolled loyalty members are cigarettes or OTP consumers. Over the quarter, we announced our OTP category by optimizing merchandising, expanding promotional activity, and leveraging strategic supply of partnership to drive market share gains. Our back bar refresh initiative has allowed us to improve space allocation and expand product assortment, to align with shifting consumer demand. As of the end of the fourth quarter, we completed more than 800 tobacco back bar refreshes and expect to refresh 100 more in the coming weeks. Our strategy around OTP during the fourth quarter led to a 200 basis point improvement in gross margin for OTP category, further widening the gap between higher margin OTP and traditional cigarettes. Notably, OTP represented nearly half of our total tobacco category contribution in the fourth quarter. Continuing with this momentum in the category, since the start of 2025, we have ramped up promotional activity in OTP and cigarettes, offering significant deals to customers to further drive sales momentum. Additionally, while we are working towards receiving permits for our seven pilot stores that will include an announced food service offering, we have seen strong customer response to the upgrade we have already made to our food service offerings, reinforcing our focus on delivering value-driven options. Our promotional efforts, including frozen and hot pizza, bakery, Nathan Famous hot dogs, and roller grill deals, continue to gain traction. In fact, We have sold more than 600,000 pizzas since launching our 499 pizza special in Q1, 2024. We are refining our food service strategy to enhance convenience, quality, and profitability, driving trial and repeat purchases through targeted promotions and bundling strategies. Turning to fuel, although retail fuel volume declined for both the quarter and year, Our pricing strategy helped preserve margin despite lower demand, lower fuel costs, and reduced price volatility, a backdrop which normally puts pressure on the ability to expand margin. Same-store retail fuel gallons were down mid-single digits for the fourth quarter and year, while same-store retail fuel margin was only down 1.1 cents per gallon in the fourth quarter as compared to the prior year period and up 0.7 cents per gallon. the full year lastly over the quarter we made meaningful progress on our dealerization program as part of our broader transformation plan we are strategically converting select retail stores to dealer sites where we believe we can generate higher contribution dollars through ongoing fuel supply agreements and rental income rather than continue to operate these locations within our retail segments our approach is centered on optimizing our portfolio, allowing us to focus our resources on high performing retail stores while leveraging our dealer network to announce profitability across our entire platform. We've set our initial targets for dealerization, having converted more than 150 retail stores to dealer sites in 2024. We expect to convert a meaningful number of additional stores over the course of 2025 with approximately 100 more stores to be converted by the end of the first quarter. Surpassing our conversion goal in 2024 is a testament to our team's focus and execution. Rob will provide more substance to the numbers later. However, we now expect our total dealerization program to generate an annualized benefit in excess of $20 million to combine wholesale and retail segment operating income. with additional opportunity from G&A expense reduction. As we move into 2025, our focus remains on our strategic priorities while delivering value to both our customers and stakeholders. We believe our disciplined approach to growth, operational efficiencies, and customer engagement initiative will position ARCO for long-term success. With that, I will turn over to Rob to discuss our financial results and our 2025 guidance.